BMI View: Over the next five years, China will see some of the fastest private consumption growth rates in Asia . We forecast average annual real private consumption growth of 8.0% over the next five years. This chimes with the rebalancing of the economy towards g reater private consumption and will see growth in this area remain strong, despite our forecasts for a slowdown in the overall economy's real growth rate to below 7.0% over the coming years. While the outlook for China's traditional economic growth drivers such as heavy industry and real estate construction remains cloudy, the outlook facing more consumer-focussed industries is relatively strong over the medium term.
Headline Industry Data
2015 food consumption local currency = +7.2%; compound annual growth rate (CAGR) forecast between 2014 and 2019 = +9.0%.
2015 beer volume sales = +6.1%; CAGR forecast between 2014 and 2019 = +5.6%.
2015 mass grocery retail sales (local currency) = +7.6%; CAGR forecast between 2014 and 2019 = +8.7%.
Key Industry Trends
Yashili To Acquire Dumex From Danone : In July 2015, Chinese infant formula maker Yashili International announced it was to acquire Dumex Baby Food Company, a wholly owned unit of Danone Asia, for an undisclosed amount. Yashili also agreed to work with Danone on a New Zealand manufacturing facility. Danone will use the proceeds to purchase a stake in milk producer China Mengniu Dairy, which holds an indirect 51% interest in Yashili. The deal aims to boost market share and enhance expansion channels amid growing competition in the Chinese infant formula market. In term of sales, Yashili is among China's top 10 infant formula makers. Danone owns a 25% stake in the company.
Convenience & E-Commerce Bright Spots In Chinese Retail : The e-commerce and convenience formats will be the main drivers of growth in China's challenging mass grocery retail (MGR) sector. Although we still forecast MGR sales to expand at a sustained pace over 2014-2019, the operating environment and retail landscape will become increasingly demanding for existing players. In this context, we believe that convenience stores and e-commerce are the formats that will offer the best growth opportunities for leading retailers over the coming months. The convenience segment will drive opportunities for brick-and-mortar stores, despite its low base, while the booming e-commerce segment has seen online retail sales double each year since 2011, illustrating the growing popularity of the format.
Beer Majors To Address Low Margins Through Marketing And M&A : While headline beer sales will remain solid over the next five years, a key area of concern that will need to be addressed is the sector's low margins by global standards. We see two main reasons for low margins in the Chinese beer sector. First, the market is still highly fragmented, with small regional players accounting for more than 25% of total sales. Second, demand for premium beer in China has traditionally been low compared to other markets, as beer possesses a no-frills image. Facing slower growth over the coming years, we expect leading players to focus on premiumisation.
Multinationals Must Adapt As Chinese Market Toughens : Over our forecast period to 2019, China's food and drink sales will continue to experience sustained growth across the board. The rebalancing of the economy towards greater private consumption will drive food consumption rates, despite a slowdown in the overall economy's growth rate. Nonetheless, we believe the recent troubles experienced by companies such as food retailer Walmart and distiller Remy Cointreau capture the increasingly challenging environment, driven by China's strict regulatory framework, the government's clampdown on gift-giving, rising labour costs, shifting consumer preferences and intensified competition.